Columbia Banking (COLB) Q3 2026 Earnings Call Transcript

Image source: The Motley Fool.

DATE

Thursday, Oct. 22, 2026

CALL PARTICIPANTS

• Director of Investor Relations - Jacquelynne Bohlen
• Chairman, Chief Executive Officer and President - Clint E. Stein
• [No title] - Ivan Seda
• [No title] - Torran Nixon
• [No title] - Christopher Merrywell

TAKEAWAYS

• Operating EPS -- $0.82, representing growth from $0.76 in the second quarter of 2026.
• Net Interest Margin (NIM) -- 4.11%, representing 18 basis points of expansion from the previous quarter driven by higher loan yields and a favorable funding mix shift.
• Customer Deposit Growth -- $1.2 billion, reflecting seasonal balance increases and new customer acquisition activity.
• Wholesale Funding Reduction -- $1.5 billion, achieved by utilizing strong customer deposit growth to reduce reliance on higher-cost borrowings.
• Share Repurchase Authorization -- $1.2 billion, representing a new board-authorized plan with no expiration date following the completion of the previous repurchase program.
• Forward NIM Guidance -- Around 4.05% for the fourth quarter, incorporating a modestly negative carry from excess subordinated debt and anticipated seasonal deposit outflows.
• Loan Origination Volume -- $1.2 billion, with nearly 70% of production attributable to commercial loans as the company focuses on full relationship banking.
• Common Equity Tier 1 (CET1) Ratio -- 11.5%, a slight decrease from 11.7% in the prior quarter as capital generation was offset by robust share buybacks.
• Operating Efficiency Ratio -- 51.3%, an improvement from 52.9% in the prior quarter through disciplined expense management.
• Total Customer Deposits -- $52.7 billion, up from $52.1 billion at the end of the second quarter.
• Gross Loans and Leases -- $46.9 billion, a decrease from $47.2 billion in the previous quarter due to runoff in below-market transactional loans and elevated commercial real estate payoffs.
• Commercial Loan Portfolio Mix -- 43% of total loans, increasing from 39% a year ago as the company shifts toward relationship-based commercial lending.
• Non-interest Income -- $87 million on an operating basis, reflecting momentum across treasury management, card-based fees, and international banking.
• Operating Non-interest Expense -- $365 million, remaining consistent with the second quarter despite reinvestments in talent and technology.
• Subordinated Notes Issuance -- $250 million, carrying a 6.721% fixed annual rate for the first five years to optimize the capital structure.
• Tangible Book Value per Share -- $18.10, declining from $19.22 in the previous quarter primarily due to interest rate-driven increases in other comprehensive loss.
• Credit Quality -- Non-performing assets were 0.39% of total assets, improving from 0.42% as of June 30, 2026.
• Net Charge-offs -- 0.24% of average loans (annualized), compared to 0.25% in the second quarter.
• Q4 Non-interest Expense Guidance -- $330 million to $335 million, excluding core deposit intangible amortization.
• Share Repurchase Activity -- 6.5 million common shares repurchased for $200 million during the third quarter, completing the previous plan.
• Branch Network Optimization -- Four branches closed and two new locations opened in Utah as part of a strategy to fine-tune physical presence in de novo markets.

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

• Seda stated, "we will be holding some amount of excess debt as we work through the [trust preferred] redemptions, and that... will cause a couple of basis point headwind as we operate through that," referring to the impact of carrying excess subordinated debt throughout the fourth quarter.
• Seda noted that the company anticipates "seasonal outflows in the second half of Q4" from the core deposit portfolio, which is factored into the fourth quarter margin guidance.

SUMMARY

Columbia Banking System, Inc. (NASDAQ:COLB) reported steady progress on its strategic priorities, highlighted by meaningful net interest margin expansion and robust customer deposit growth. Management stated that the company successfully reduced wholesale funding by $1.5 billion during the quarter, utilizing $1.2 billion in new customer deposits to optimize the funding mix. The company marked the one-year anniversary of the Pacific Premier acquisition integration, which management described as a smooth transition that enhanced its footprint across the Western United States. During the quarter, Columbia Banking System returned approximately $200 million to shareholders through buybacks, completing its previous authorization and initiating a new $1.2 billion share repurchase plan. Management reported that credit metrics remain stable, with non-performing assets declining to 0.39% of total assets even as the company increased provision expense to reflect shifts in the economic forecast.

• Management emphasized the transition of the loan portfolio toward relationship-based commercial lending, which now comprises 43% of total loans compared to 39% a year ago.
• Clint Stein noted that technology is being used to enhance the relationship banking model, stating, "Technology enhances our relationship model, It does not replace it."
• The company is expanding its presence in de novo markets, having opened a branch in Draper and a financial hub in Pleasant Grove, Utah, during the third quarter.
• Torran Nixon reported that treasury management revenue grew 7% year over year, while international banking and commercial card fees rose 19% and 23%, respectively.
• The company plans to redeem approximately $240 million in junior subordinated debentures associated with trust preferred securities through early 2027 to further optimize its tier 2 capital structure.
• Management indicated that they expect the net interest margin to remain above 4% for the next several quarters despite anticipated seasonal deposit fluctuations in the fourth quarter.

INDUSTRY GLOSSARY

• ACL (Allowance for Credit Losses): A reserve established by a bank to cover estimated losses on loans and leases that it will not be able to collect.
• CDI (Core Deposit Intangible): An asset recognized in an acquisition that represents the value of the acquired core deposit base.
• CET1 Ratio (Common Equity Tier 1): A key regulatory capital measurement that assesses a bank's core equity capital compared to its total risk-weighted assets.
• NIM (Net Interest Margin): A measure of the difference between the interest income generated by a bank and the amount of interest paid out to lenders, relative to the amount of its interest-earning assets.
• ROAA (Return on Average Assets): A financial ratio that shows how profitable a company is relative to its total assets.
• ROTCE (Return on Average Tangible Common Equity): A measure of profitability that calculates the return on a company's common equity after removing intangible assets like goodwill.
• TruPS (Trust Preferred Securities): A hybrid security that has characteristics of both debt and equity, often used by bank holding companies to raise tier 2 capital.

Full Conference Call Transcript

Operator: Hello, and welcome to Columbia Banking Third Quarter 26 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *11 on your telephone. You would then hear a automated message advising your hand is raised. To withdraw your question, please press *11 again. At this time, I would like to introduce Jacquelynne Bohlen, Director of Investor Relations, to begin the conference. You may begin.

Jacquelynne Bohlen: Thank you, Towanda. Good afternoon, everyone. Thank you for joining us as we review our third quarter results. Earnings release and corresponding presentation are available on our website at columbiabanking.com. During today's call, we will make forward looking statements, which are subject to risks and uncertainties and are intended to be covered by the Safe Harbor provisions of federal securities law. A list of factors that may cause actual results to differ materially from expectations, please refer to the disclosures contained within our SEC filings. We will also reference non GAAP financial measures and I encourage you to review the non GAAP reconciliations provided in our earnings materials.

I will now hand the call over to Columbia's Chairman, Chief Executive Officer and President Clint Stein.

Clint E. Stein: Thank you, Jackie, and good afternoon, everyone. Our third quarter results demonstrate steady progress on the same core priorities we have outlined for the past several years. Delivering consistent, repeatable performance continuing to reshape the balance sheet to support long term profitability and returning excess capital to shareholders. This quarter, we continued to grow relationship based commercial loans and utilized funds from strong customer deposit growth to reduce our reliance on wholesale funding. Enabling both sides of the balance sheet to contribute to net interest margin expansion. We also returned over $1 billion to our shareholders over the past year, through dividends and share repurchases.

Completion of our existing buyback authorization resulted in an 8% reduction in our common share count, over the duration of the program. Given our confidence in Columbia's long term strategy, and our outlook for continued excess capital generation, our board of directors has authorized a new $1.2 billion share repurchase program. Our results reflect the benefits of consistent execution even as the operating environment continued to shift. Discipline is not always the easiest path, but it is 1 our teams have maintained quarter after quarter across loan and deposit pricing, credit, and expense management, That sustained consistency has driven improved profitability and a balance sheet increasingly built around full customer relationships.

In August, we marked the 1 year anniversary of closing our acquisition of PAC Premier. Which was the smoothest integration I have experienced in my 21 years with Columbia. Over that time, we have built a compelling footprint across the West achieving scale and a competitive presence through the combination of organic growth and strategic acquisitions. As I have repeatedly stated over the past 18 months, PAC Premier was a missing piece to the franchise we envisioned. Our focus remains on fine tuning our franchise and continued execution on organic growth opportunities.

Our Northwest routes support our 10% market share in Washington, Oregon, and Idaho, while our growing presence in other key Western markets provides us with significant opportunity to gain share and further enhance our market position. With the integration fully behind us, we are applying our operational discipline with even greater focus. Looking across the company for additional opportunities to improve efficiency and profitability. Together with our continued balance sheet optimization, and intentional approach to capital management, this work strengthens our ability to deliver sustainable long term value for our shareholders. I will now turn the call over to Ivan.

Ivan Seda: Thank you, Clint, and good afternoon, everyone. As Clint highlighted, our third quarter results reflect the progress we continue to make on our strategic priorities. Turning to Slide 11, we reported EPS of $0.78 and operating EPS of $0.82 for the third quarter. On an operating basis, which excludes items detailed in our non GAAP disclosure, third quarter pre provision net revenue and operating net income increased 76%, respectively, compared to the second quarter of 26 and 25 percent and 12%, respectively, compared to the third quarter of 25. A more favorable mix of loans and funding, together with disciplined expense management, drove both the sequential and annual growth.

The addition of PAC Premier also benefited the year on year comparison. Turning to Slide 12. Average earning assets were $59.8 billion during the third quarter. As balance sheet optimization and elevated CRE payoffs contributed to modest contraction compared to the prior quarter. Actively managed our funding base using strong customer deposit growth to reduce wholesale funding including public wholesale balances. Between June 30 and September 30, we reduced wholesale funding by 1.5 billion contributing favorably to net interest margin. Slide 13 outlines the contributors to sequential quarter change in net interest margin with NIM at 4.11% for the third quarter.

Adjusting for the 3 basis point benefit from accelerated repayments this quarter, and the 3 basis point impact of 1 time credit related interest reversals last quarter, our NIM expanded by 12 basis points sequentially. Our balance sheet optimization strategy drove meaningful NIM expansion, building on improvement throughout the past year. As previously articulated, NIM moved above 4% and excluding unusual items, we expect it to remain above 4% for Q4. More specifically, we are guiding to a Q4 NIM of around 4.05%, which incorporates the impact of carrying excess subordinated debt throughout Q4 at a modestly negative carry.

Our latest interest rate modeling continues to show that our balance sheet ratios remain largely neutral positioned to rates, as slide 14 details. Providing earnings insulation whether interest rates rise or fall. Noninterest income in the third quarter was $80 million on a GAAP basis, and $87 million on an operating basis as detailed on Slide 15, at the high end of our guided range. Our results reflect continued momentum across products, and businesses, and we expect non interest revenue to remain in the mid-$80 million range for Q4. Slide 16 outlines non interest expense which was $365 million on an operating basis. Consistent with last quarter and reflecting disciplined expense management across our core franchise.

Excluding CDI amortization, which will decline slightly each quarter, we expect fourth quarter non interest expense to be in the $330 million to $335 million range as we continue to reinvest in our franchise. Moving on to Slide 17, provision expense was $33 million for the third quarter reflecting loan portfolio runoff, credit migration trends, and changes in the economic forecast used in our credit models. Credit metrics remain stable and healthy. Slide 18 details our allowance for credit losses by portfolio, with coverage of total loans at 1.02% at quarter end and 1.25% when credit discount on acquired loans is included. Turning to capital. Slide 19 highlights our regulatory ratios at quarter end.

Our CET1 ratio declined slightly to 11.5% as our regular dividend and robust buyback activity modestly outpaced strong capital generation and the benefits of balance sheet optimization. During the third quarter, we repurchased 6.5 million common shares returning approximately $200 million to our shareholders and completing our prior repurchase plan. Our total risk based capital ratio increased to 13.8% reflecting Columbia Bank's issuance of $250 million in aggregate principal amount of subordinated notes during the quarter.

We expect to use these proceeds to redeem approximately $240 million in aggregate principal amount of junior subordinated debentures associated with certain trust preferred securities through early 27 causing our risk total risk based capital ratios to decline approximately 50 basis points all else equal. These actions advance our broader strategy to optimize our balance sheet and our capital structure. Tangible book value declined during the quarter to $18.10 due primarily to an increase in other comprehensive loss as interest rates moved notably higher during the third quarter. Looking forward, we expect share repurchases to remain in $150 million to $200 million range for the fourth quarter under the new repurchase plan that Clint outlined.

Overall, we are very pleased with the financial results the quarter, generating an ROAA of 1.4% and an ROTCE of over 17%. Our focus remains on protecting the quality of our earnings as we work to improve returns over time. With that, I will now hand the call over to Tore.

Torran Nixon: Thanks, Ivan. Our teams produced another quarter of solid relationship driven results. Our loan portfolio continues to shift in the direction we want. With commercial loans inclusive of owner occupied CRE comprising 43% of the total portfolio compared to 42% at June 30, and 39% a year ago. Competitive pricing and structures that we are unwilling to match contributed to a decline in loans to $46.9 billion from $47.2 billion as of June 30. Although the pace of decline slowed relative to last quarter. Loan origination volume was $1.2 billion during the third quarter with nearly 70% attributable to commercial loans. Our focus remains on winning full commercial relationships rather than single product transactions.

These broader relationships extend naturally into deposit and fee income opportunities supporting stronger, overall profitability. Turning to deposits. Strong growth in customer balances supported an increase in total deposits to $52.7 billion compared to $52.1 billion at June 30. As we intentionally reduced public wholesale and brokered balances, Customer deposits increased by nearly $1.2 billion during the third quarter, due to seasonal balanced growth and new customer activity. As Clint noted, our discipline extends to deposit price The average cost of interest bearing deposits declined 1 basis point to 1.95% for the third quarter. Our spot cost of deposits was largely stable at 1.96% as of September 30, reflecting a measured response to the Fed's rate increase in September.

Our relationship approach to banking is driving a greater contribution from fee income to total revenue. We are seeing momentum across core fee businesses, including treasury management, card based fee income, and services such as international banking. Wealth management also is contributing to more noninterest income. Consistent with our broader focus on improving profitability, we regularly evaluate our physical footprint to ensure it reflects how customers bank with us today and into the future. To that end, we closed 4 branches during the third quarter, as we continually fine tune our physical presence. We also opened a branch and a financial hub in Utah. Adding locations to support our customers and bankers in our de novo markets.

At the same time, we are bringing new talent to Columbia Bank, and investing in the development of our existing teams, reinforcing our relationship banking approach cultivating the next generation of leaders. I will now hand the call back to Clint.

Clint E. Stein: Thanks, Tore. From the outside, it was a relatively uneventful quarter for Columbia. Reflecting another period of consistent execution Behind the scenes, we are very busy. We have delivered 11 consecutive quarters of predictable financial performance. While continuing to reshape our balance sheet and strengthen the franchise we have built. Across the West. Embrace technology and automation to improve the customer experience, and make our teams more effective. Enabling our bankers to spend more time serving their customers. Technology enhances our relationship model, It does not replace it. We remain confident in our strategy because our customers are attached to relationships not a robot. Our customers choose Columbia because of the bankers who know them and their business. Businesses.

And our branches remain an important part of how we build and retain these relationships. I wanna thank our teams for their disciplined execution and drive to get better each and every day. This concludes our prepared remarks. Christopher, Tory, Ivan, and Frank are with me. And we are happy to take your questions now. Towanda, please open the call for Q&A.

Operator: Thank you. To withdraw your question, please press 11 again. Our first question comes from the line of Jon Arfstrom with RBC Capital Markets.

Jon Arfstrom: Hey, thanks. Good afternoon, everyone.

Clint E. Stein: Hi, John.

Jon Arfstrom: Nice job here. there is a lot of places to go, but maybe Ivan start with you on the margin. Thanks for the thoughts on the fourth quarter margin, but the $4.05 million was a surprise. To us, I think. I mean, $4.11 was a big surprise, but I see the items, the $4.05 was a surprise. To us. And I guess I am just curious how you feel about the momentum and the margin where you think this could go over time. You mentioned things like sub debt maybe surprising it in the near term, but do you think the trajectory of the margin could look like over time here?

Ivan Seda: Yes. Thank you, John. I appreciate the question. A couple things I would say around that. First of all, just kind of unpacking Q4 a little bit more depth, potentially. Recall that know, while our margin for Q2 reported was 3.93, that had some negative impacts that we called out last quarter, including the onetime credit related interest income reversals and some of the accounting yield associated with the investment portfolio. You think about where we landed for Q3, there is there is really 4 factors in terms of how I have thought about the margin this quarter. First, obviously, benefiting from the absence of those headwinds that we called out.

90 days ago, and you can see that pretty clearly on the walk on Slide 13. Second, as you get into the earnings release detail, you will see that our loan portfolio optimization and what Tory articulated earlier out of lower rate transactional and into our core commercial lending, portfolios continues to help support stronger returns. And that is something that we do anticipate to continue as we as we look forward in this, higher for longer rate environment. Third, we were, I think, very pleased with the results from a deposit generation perspective. Without really seeing at least quarter on quarter a meaningful shift in overall cost of the deposits.

And like I mentioned earlier, that allowed us to continue to optimize the other side of our balance sheet, which has been a core focus of ours. With about $1 billion of higher cost wholesale funding coming down. And then we noted it earlier, but we did have about $5 million in interest income related to accelerated repayments. And that part of it is more you know, onetime in nature. The other factors are really aligned to the strategy that we are pursuing. And I think if you look back at the net interest margin over the past 4, 5 quarters, you can see the progress and it is not always linear.

But we anticipated, as we have talked about, I think, pretty openly, crossing over the 4%. As we look further on, we will continue to expect to be operating in that low 4% range for the next several quarters. Q4 few things I would say around that 4.05%. You know, number 1, we will be holding some amount of excess debt as we work through the Trump's redemptions, and that is really just you know, a function of kind of the timing associated with the sub debt issuance versus going through the various redemption activities over the course of Q4 and Q1.

We will work through the majority of that, but that will cause a couple of basis point headwind as we operate through that. And then number 2, we tend to see seasonal outflows in the second half of Q4. Like many of our peers do. And so we factor that into to our modeling as well for Q4. And so, you know, if you would have asked me and if I would have been willing, which I would not by the way, but if I would have been willing to give you a Q4 number 90 days ago, I would have said 04/2005 at that point as well.

And so you know, we are we are definitely pacing towards where we expect to be If we do outperform that, I think it will be a function of what we have seen within rates and the rate impact on asset yields potentially impacting our margin more rapidly than the funding side. But we will see how that shakes out as we move through the course of this quarter.

Jon Arfstrom: Yep. Okay. Very helpful. A good performance. Maybe just to follow-up on that Tore, on the origination pace. You mentioned some irrational competition in spots. Can you touch on that a little bit? And then just also maybe comment on what you are seeing in the pipelines?

Torran Nixon: Sure. Yeah. So production was really strong and steady. Pretty consistent kinda quarter over quarter over quarter. So great to see that. And kind of as I look into Q4, it looks pretty comparable. And like the direction that the teams are going in. The irrational behavior at sometimes in some markets is a little bit silly, especially on the real estate front. You know, we you either see, you know, much too much leverage in a in a deal that we are just not interested in, or without any real recourse, any guarantee, so a nonrecourse structure that the income from the property really does not warrant it. Or you are seeing rates that are crazy low.

We have seen a bunch at a SOFR plus 100. I have yet to see 1 dip below 100, but I know it is coming. And, you know, so we just kind of have a quick conversation with the teams and just pass on it because it is not something we want to do. But, you know, and it-- I have been looking a lot at it to see geographically or product type or kind of where it is coming from, but it is-- it is-- there is not a ton of it, but it-- and it is broad based. So it is not in 1 geography or 1 asset class. it is kind of spread out a bit.

And it-- it is not all the time, but it is enough to kind of make you shake your shake your head for sure.

Jon Arfstrom: Alright. Thank you very much.

Operator: Thank you.

Christopher McGratty: Our next question comes from the line of Chris McGratty with KBW. Your line is open. Clint, for you, when you announced last year's buyback, which is about a year ago, to the day, think I asked you, like, intent to use, and you said we are going to do it, and you did. When you gave the guide for Q4 of 150 to 200, how do we think about the pace of the $1.2 billion? I guess it is a lot in there between the TruPS and the balance sheet. You are making a ton of money. You are redoing the capital stack a bit.

But it feels like that 150 to 200 pace could move higher over the next few quarters, but just opportunity to agree or disagree.

Clint E. Stein: Yeah. I think we are comfortable with the pace that we have been at. You know, that 150 to 200 per quarter You know, we did the authorization that we just completed had a duration of 12 months. We did not put a 12-month cap on this 1. So I guess you could do the math and you know, think about better you know, run rate that we have been doing the last several quarters if we just roll that forward. You know, there is a little more time for that to run past say, the next 12 months.

Again, though, all things being consistent, the economy still being resilient, and things of that nature, our intent is to fully utilize it. We did not throw a number out there that we do not intend to utilize But the pacing of it will be pretty consistent, I believe, with what you have seen over the past year. Unless we see some sort of major pullback, in the stock. And then, again, we would have the flexibility to do a little more at that point in time. If conditions warranted.

Christopher McGratty: Okay. Great. And then maybe for you and Ivan, just the triangulation between the capital targets your risk base, I think, has always been your kind of binding constraint, but CET 1 and TCE Any more comfort giving us kind of a bogey that you are that you are targeting over the medium term?

Clint E. Stein: Well, I think we been pretty consistent for 15-plus years in terms of where we want to be on the target level. We have also had a hard time getting our capital down to those target levels. You know, I think. And Ivan can speak to it more, too. I do not know if he will share with you, but all the modeling that he is done and stress scenarios and how not only the newly authorized repurchase plan, but also our regular dividend. You know, and we feel really comfortable with those stressed results. And our ability to continue to return capital to shareholders.

The 1 area that we have talked about you know, in the past is the TCE ratio. And just kinda naturally over time in a stable operating environment, You know, 12% total risk based capital, 12.5%. Somewhere in there, equates to roughly 8% TCE. And at least on our balance sheet, that is been the historical alignment. I exclude the AOCI to a certain extent. I am thinking about TCE, just like as we were building from, you know, below 7% to well above 8% over the past couple of years, I excluded it at that time as well because you know, we have a phenomenal deposit base.

We have great liquidity, and we have the ability to hold those securities that are driving those AOCI marks to their maturity. Or until the rate environment changes course a little bit. So and I think also back to the modeling that Ivan and his team do, you know, they also model additional rate shocks and what that impact is on our tangible ratio. And, you know, we have a lot of comfort around it. Do not know, Ivan, if you wanna add any detail.

Ivan Seda: Not a ton to add there. Like Clint had indicated, every single quarter as we go through this, we model out what we expect from a capital generation, capital needs, payback period associated with the repurchase program. We are also keenly aware and monitor closely capital ratios on the mark to capital basis, including TCE to TA. Like everyone else, you know, we are also keeping an eye to the future with regard to monitoring the, you know, potential regulatory capital effects of Basel III proposed rule maybe? Making, and we have a sense for what that could offer, but we are not explicitly counting on that sort of capital relief at this point in time.

So long winded way of saying that, you know, it all goes into the mix We keep track of all of it, and we are comfortable with our current levels. You know, confident in terms of the capital generation that we are going to create here in Q4 and into 2027. And that all goes into the equation as we balance out the capital impacts.

I guess the last thing I would say, and you did not explicitly ask about it, but we are also kind of in the mix of kind of our tier 2 capital remix strategy as you know, Christopher, with the bond issuance that we completed in Q3 and then the associated redemptions that we are working through now. So that is an active part of our capital management that we are in the midst of as well.

Christopher McGratty: Great. Thank you.

Operator: Thank you. Our next question comes from the line of Jeff Rulis with D.A. Davidson. Your line is open.

Jeff Rulis: Thanks. Good afternoon. If I could swing back into the margin for a minute. Ivan, I wanted to make sure I get the headwind in Q4 but it sounds as if you are alluding to that flips as you get those Trump's, redemptions, you know, that will ultimately turn into a tailwind. I just wanna understand that piece. First, I suppose.

Ivan Seda: Yep. And so I will not go over all the details of the specifics of this. The sub debt issuance. We completed that 10-non-call-5 transaction in mid September. And so when we think about Q3 and the funding profile of the bank, that really was only in effect for know, 2 weeks out of the full the full quarter. The Trump's activities, we are working through the redemptions that we have identified as potential. In totality, there is about $240 million worth of Tier 2 capital in the form of trust preferred securities that will be redeemed. About 80% of that pool, 75-80% of that pool will be redeemed between now and the end of this year.

And then we will have kind of a hanging Chad that we will clean up in Q1 of next year. And so really what that does is it means that we have got somewhere in the ballpark $200 million of excess tier 2 capital. That is our most expensive form of capital, whether it is the legacy trucks or the sub debt. And so we will have a slightly higher reliance upon that in Q4 relative to Q3 and relative, as you said, in terms of potential future 90 days from now as we talk about outlook for Q1, likely talking about that as a modest benefit going into next year.

The other dynamic is more just the seasonal flows associated with our deposit portfolio. Q3 is seasonally strong for us, and that was not the entirety of the strength that Tory about earlier. I am sure we will talk more about it here in a bit. But that was a factor in Q3. And we tend to see a little bit of a, an outflow in the second half of Q4. From a from a core deposit perspective, typically. And so that is worth a few basis points as well.

So those are the 2 things that we are looking at in terms of that, guiding to that 4 zero 5 relative to, you know, that pro form a adjusted 4.08 for this quarter, excluding the onetime, accelerated prepayment.

Jeff Rulis: Right. Sorry. I was I was kind of alluding to 2027. If you just think about the major pieces of. If you enter the year with maybe the seasonal deposit outflows are a headwind in the first half, But trough's redemptions, the flip of what is happening in Q4 is maybe a net positive then you layer on the favorable back book repricing potentially in 2027. I just want to, like, net that out. It still looks like a 4.05 starting. Or if you are going into the year, it is still a net maybe positive upward trajectory. Is that fair to say on the margin?

Ivan Seda: For 2020 I think that is fair, although Jeff, it almost sounds like you are trying to tease out a 2027 guide, but I know you are not. You know, what I would say, we are still going through our planning on 2027, but there are a few things I think that we could expect at least as we turn the corner into the first half of the year. I think on the balance sheet, you can largely expect more of the same over Q4 and Q1. As we continue to optimize the mix of loans out of transaction and into core relationship based commercial lending.

Which as you have seen throughout the course of this year, mute the actual balance sheet growth, but does provide what you are alluding to, which is positive revenue momentum in the form of margin expansion. We will continue to maintain what I would call an intense focus on driving core sticky client deposits and leveraging that funding to continue to optimize our wholesale sources. And I think you know, when we have connected with you in the past, you. You will note that is not linear. Right? That there are seasonal flows associated with that optimization, but that will continue as well.

So I think the resulting NIM kind of in that low 4 range to start the year but continuing to expand is a reasonable expectation when you put those puzzle pieces together.

Jeff Rulis: Yep. Just trying to get to the drivers. Appreciate it. The maybe hopping over just 1 other question on the on the provisioning and the and the reserve level. You had net loan runoff this quarter and NPAs down. And I guess theoretically, you are. You have got a more relationship heavy model so sort of derisking in some ways. I just wanna get some understanding of the reserve build in with some of these other factors would suggest maybe lightening up appreciate it.

Ivan Seda: Yeah. You are spot on. And I guess 1 of the things I would say is I would categorize-- I am not sure I would note this being a material shift, right, going from basically a 1 basis point movement in our overall allowance for loan losses. The economic backdrop that we put into the model this quarter versus 90 days ago, was pretty darn similar. I think the 1 difference being the rate environment. And not just kinda where we are at today, but what the model expects going into next year I think most folks are modeling.

A further increase later on this year and then anywhere from 1 to 3 increases over the course of kind of the first half of 27. Whether or not that translates into, more pressure for certain borrowers in real estate and other verticals or not. Is probably beyond my crystal ball to read. But I think that is probably what the model's catching up on is just that factor. So it is really more the economic backdrop that I think the model was picking up versus anything idiosyncratic in our portfolio.

Look to Frank if he wants to add anything to my comments here, but generally, in terms of what we are seeing in our book, it is been very positive.

Analyst: No. I think you I think you said it really well. I do not have anything else to add.

Jeff Rulis: Appreciate it. Thank you.

Operator: Thank you. Our next question comes from the line of David Feaster with Raymond James.

David Feaster: Hi. Good afternoon, everybody.

Clint E. Stein: David.

David Feaster: I wanted to dig a bit into the deposit growth. Really, really strong. Obviously, there is some seasonal dynamics, you know, nice tailwind from the small business campaigns. Could you just touch on some of the drivers that you are seeing on this outside of maybe those 2 dynamics? How much is commercial versus retail, new account growth versus deeper relationship and if there is any markets or segments where you are seeing more opportunity for growth. Just kinda curious what you are seeing there.

Clint E. Stein: Yeah, David. I will I will I will kick it off, and then I am sure Christopher and Tore will fill in the details on that. But you know, I think it comes back to what we have been saying. Really for the last, 3.5 coming up on 4 years is you know, post the Umpqua acquisition, we have been running the legacy Columbia model. You know, and a little bit of that is been tempered by optically by the balance sheet repositioning and things,. But, you know, each quarter, we have talked about the activities of our bankers, and that is what we really focus on.

And I know a lot of a lot of folks run their models off of just earning asset growth, but know, I really look at it from the standpoint of are our bankers doing the right activities And, you know, you can see that you know, as time progresses, both the consistency and stability of our earnings, the growth in fee income, which is a function of what we are doing in the commercial you know, C and I side, you know, the small business activity that we are driving out of there.

You know, we had another great year in terms of the SBA rankings. it is been a big focus of ours and making sure that we are serving the smallest of businesses as well as, all the way up through the upper middle market. So I think that what you saw in addition to third quarter is always our seasonally strongest from a from a deposit standpoint. But I will I will I will point you back to it is our business model and it is the ongoing activity of our of our bankers that are committed to that model. And I will step back and see if Christopher-- Chris is anxiously waiting to add his commentary here, David.

Christopher Merrywell: Anxious. Very anxious. Thanks for the question, David. Yeah. You know, small business campaigns, they extend across quarters. So I wanna be, you know, pretty upfront that, that is not driving all of all of this growth. And know, there is no special products. there is no special pricings. It just allows our branches to have a common purpose and actually have some fun. I think, though, most of all, you know, we are proud of the focus of our bankers that they have on relationships selling. To not only new customers, but to deepening existing customer relationships. there is lots of opportunities, there too with deposits that are held elsewhere.

I would also, you know, kinda pile on that of campaigns or just a piece of what we do. The third quarter deposit growth is truly a team effort across our franchise, and it touched every single business line. And was previously stated earlier in the call, you know, the deposit growth is driven in a disciplined model towards pricing. I mean, holding our cost of funds steady while we continue to remix from higher price CDs into core deposits is, it is actually fantastic. And simply put, and I will turn it over to Tory, I would say this is how we do business.

Torran Nixon: Well, between, Christopher and Clint, they probably stole all the thunder, but, I have got a couple things I wanna add because the. Just very proud of the commercial folks this quarter. They had nearly a billion dollars in customer deposit growth. And it is a combination of new customers, new relationships, and new money to the bank with just growth in existing accounts. But then also, you know, confidently going back to our customer base and having. And really having that confidence to have conversations to bring you know, any balances they have other places, into the company. And I give a special shout out to those folks and our treasury management folks for the work that they did.

Clint talked a lot about activities and behaviors. And we have over the last year or so really instituted some accountability around working capital assessments and relationship reviews. And it is producing some really nice results for us, not only in the deposit side, but on the fee income side. And, just to give you a couple stats that are, I think, very relevant to it on the fee income side, Our treasury management business is up 7% year over year. Our international banking business is up 19% year over year. Our commercial card business is up 23% year over year. And our merchant card business is up 11% year over year.

So all of that is a result of some real core, behaviors and activities. I think the teams are doing great. Lastly, Clint talked about the integration with PAC Premier. When you look at the deposit growth for commercial, nearly half of that came out of, legacy PPE, Southern California. Folks and really shows that they have fully integrated into the company and they are making some real, progress in their existing customers, but getting out in the markets and taking advantage of who we are there to grow our customer base in Southern California.

David Feaster: Okay. that is super helpful. And maybe just touching on the expense side. Look. You have always been cost conscious, and we have talked about this previously. it is a part of your DNA. How do you think about the expense front? Like, where are you finding these savings and efficiency to fund the investments that you are making? And just what are some of the key investments that you are you are focused on as it relates to tech or hiring and even some of the branch expansion that you highlighted in the release?

Clint E. Stein: Well, David, as always, tend to pack a lot into a single question. As a group, we will try to do our best to touch on all those points. And I will I will just start off by you know, saying that, you know, we have we have put 3 large organizations together And anytime you do that, there is processes and things that maybe worked for 1 organization, but are not as efficient as what they can be for an organization with our size and scale now. And then you add into that the speed to which we can automate things.

And, again, I will go back to my prepared comments about we have a lot of technology think our platforms are contemporary. We do not shy away from that. But it is a tool. it is a tool that helps, remove friction. it increases our speed to market, take care of our customers, and create a better employee experience. So we are always looking at how do we get better every day. The team, and you have probably heard this over the years, whenever they come forward with, an investment opportunity, it is it is usually do you have an offset? there is gotta be an inefficiency somewhere in your vertical Go find it and use that to offset it.

And in the rare occasion that we cannot find an offset, then we let the revenue projections speak to themselves, and we will make the investment that way. And that is kinda similar on our on our branch. Our, you know, our de novo branching activity is you know, we determine if there is an underserved market if there is a gap in continuity of our existing footprint, things of that nature. And most importantly, do our do our commercial bankers in those markets, are they pushing for and requesting and stating the need for a branch location? Because once they do that, then we know their.

The whole market is committed to making that a success. that is been the model we had I do not know, 6, 7 years ago when we put our first branch in Downtown Boise, and that is the same model we have utilized as we have expanded to Utah, Arizona, and Colorado, as well as within existing markets You know, we just opened a branch last quarter in Las Vegas, and that is 1 that, again, the teams were saying we need some infrastructure. We can leverage that. We can bring in more commercial customers.

So I am sure I have only touched on a fraction of the points that you had, so I will step back and see if Ivan, Chris, or Tore wanna add anything.

Ivan Seda: I mean, not much to add from my perspective other than David. I know we have talked about this when we have been together here over the course of the year that we flagged from the very beginning that we thought we had a unique story to tell for 2026 with embedded positive operating leverage, right, with revenues coming up we continue to optimize our business, continue to drive the core fee income that Tory talked about with a lot of singles and doubles. Then on the expense side, a scenario where we had an opportunity to as revenue goes up from H1 to H2, an opportunity to take expenses down.

I think we have been extremely disciplined in of PPBI. I think we celebrated outperforming our original goals and targets with regard to identification of cost savings predominantly in vendor based spending contract spend, which is great. And that is allowed us the frankly, the luxury from my perspective of continuing to reinvest while still, you know, staying within the guardrails that we have established for ourselves in funding. And again, this quarter, know, being able to redeploy some of that capital into future growth in the form of, expanded physical presence in markets that we are really excited about. I think as you look out into next year, that discipline will continue as will the reinvestment.

And so I think it is a pretty good it is a pretty good mix with regard to that.

Torran Nixon: The only thing I would add, this is Tory, would be some of the people side of it where to Clint's point, we find an offset, and we have invested some on the commercial banking side in Utah. And Arizona. Our Native American banking business, and then our fast food franchise business. You know, those are, like, 4 or so areas where we really look to increase the number of folks. But the talent. And we are we are we are bringing in some incredibly talented bankers in. Into many, many parts of the company, but it is specifically those areas.

Christopher Merrywell: Yeah, David. And what I would add on that is we are doing the same thing in the wealth management space. Pretty excited about some of the talent we are currently talking to. And when you look at the addition of the private trust business joined us a year ago from PAC Premier, Wealth management continues to become a bigger presence bigger part of that noninterest income. The last quarter was actually our second largest source of it. So, you know, we are expecting great things out of that and continued growth as well.

David Feaster: And maybe just kind of a following up on some of those to some degree. I mean, Clint, the way you started out the call was talking about the consistency of your performance, and what you guys have done. And we spent a lot of time talking to investors, talking about the durability of earnings. What gives you confidence? I mean, lot of that we have talked about has been a lot. A decent amount of self help in balance sheet optimization. there is still some tailwinds there. But you know, we had tailwinds from synergies from the deal.

And, again, a lot of the repricing and shrinking of net negative yielding assets, what gives you confidence that is sustainable going forward? Just as rates are rising and competition's intensifying, and there is, you know, potential for weaker macro trends. And just kinda curious what gives you confidence that is sustainable going forward?

Clint E. Stein: David, what we cannot-- what we cannot control is the macro environment. And so, you know, there is a little bit in, you know, as our industry, as the macro environment changes, our industry either gets headwinds or tailwinds and we face those same headwinds and tailwinds. But we do focus on what we can control. And we can control our expense discipline, our pricing discipline, the quality of our fortress balance sheet, the granularity and diversity diversification that is that is on both sides of the balance sheet, whether it is the loan portfolio, the quality of our investment portfolio, or our core deposit base.

And that has given us a very resilient stable performing company that throughout really throughout the 33 year history of our company, and various business cycles. You know, I will use the GFC as an example. You know, we took our lumps just like everybody else, but we came through it, bought 5 failed banks from the FDIC and built the company that we have today. So it was not fun. But it was an opportunity for us to you know, really to thrive coming out of it. And a lot of our customers we view the same way. They are good operators.

And whatever whenever their industry goes through any type of pullback or downturn, they usually come out stronger because it is the weaker operators that go away, or, retrench. And you know, we are we are no different in terms of how we think about our business. And so I always look at it on a relative basis, how are we doing? And we have stated that you know, our objective is to always be top quartile. And if we are not, then we are working hard to figure out how to get there. And so it is just I have seen it play out. Over the last 21 years.

And when I say we are running the historical Columbia business model, you can see that in terms of what is coming on the balance sheet and what we are flushing off the balance sheet. And then we have these headwinds or these tailwinds of that you mentioned. You know, mixing out of lower yielding assets mixing into more of our traditional assets that are coming on at 200-plus basis points higher than the stuff that is rolling off. And then I know we still have pockets of inefficiency within our company that either exist as a byproduct of bringing and PAC Premier under our umbrella.

Or just with the advancement in technology and our ability to do things quicker and better. You know, it is it is not any 1 single thing. it is really just being focused on every little detail. Think I probably drive the team nuts sometimes with some of the details that I come back and ask them with. You know, you are you are pretty busy right now. I mean, you have got a baseball team to root for in the World Series. You know, we did not get any. You know, Mariners did not make the playoffs. So October, I spent a lot of time, you know, digging into the weeds instead of watching baseball.

And you know, so that is why I am I am pretty confident that we still have some things we can do. Are any of them going to move us from, you know, say a 1.40 ROAA to 1.60? No. But what they will do is enable us to maintain our level of performance maintain that top quartile and top decile returns. And continue to make these investments in our company, whether it be platforms or some of the investments in people that Terry. That Tory spoke of. So we are just. Lot of optimism.

David Feaster: that is terrific. Thanks, everybody.

Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Analyst with Deutsche Bank. Your line is open.

Bernard Vaughan Gazzicchi: Just on the geographic optimization, you opened up the 2 locations in Utah while closing the 4 branches elsewhere. Are there any particular states where you have more optimization remaining, I. E, branch closures than others? Or just like to hear some color on that. And, Tore, I believe you said it is more just fine tuning, so maybe there is not a lot to go.

Clint E. Stein: Well. And I think Christopher and Tory can add their thoughts. But you know, we look at where we have a lot of density, and the way that the company was built over time and some of the markets that we are in and you know, they are they are stable markets. They are not high growth markets. But we have great market share and plan to stay in each community that we are in. But you look at kinda. Let's use the Phoenix market as an example. And I think we have 5 offices there now.

We probably over time, maybe need 2 or 3 more, and we will have the entire metro area covered in terms of how we think about you know, folks. You know, my view is folks will drive 30 minutes if they have a problem that they need to solve or they wanna strategize and meet with somebody, in person, you know, in our metro areas, 30 minutes is kind of what everybody's commute is anyway. So in a market like Phoenix where traffic moves and, every we can do it with a very branch wide approach.

The problem that we were trying to solve and we spent a couple years trying to solve it, but PAC Premier solved it for us how do we build that kind of density in Southern California because 1, it is an immense market. 2, 30 minutes with LA traffic, you might go 2.5 or 3 miles. And so you know, that is. It. it is it is really market by market. And then I look at things like Washington. So, you know, in Washington, we have our highest, branch count You know, it is a few more than what we have in Oregon, and a more than what we have in California.

But, you know, there is there is there is an underserved market that we are looking at right now. And, and we believe that you know, that branch would be profitable very, very quickly. And so, so it is just sometimes being opportunistic Sometimes it is it is satisfying the request from customers who are saying, there is an unmet need here. And then assessing it and determining the type of value and business volume we can drive from it. You know? And so where we look at it you know, we have kinda you know, we probably need some more infrastructure in Colorado to properly serve the Denver market.

What we did in Utah was we had some money pigeonholed for Southern California that we were able to divert and reinvest in the Salt Lake area. And I feel like that strategically where those offices are placed are pretty. We pretty much have coverage that we need in that market, we will shift our attention to some of the other locations. Christopher, you wanna add anything?

Christopher Merrywell: Yeah. The only thing I would really say is that fine tuning is always going on. What Clint describes is a that it is almost a daily process. We are always looking at branch profitability, coverage, where customers are going, You know, I would kinda just say it as demand drives some of those new opportunities. And customers certainly do. And beyond that, what you will not see is a mass announcement of closures or something of that nature. And we are gonna be pretty strategic on any new locations. But yeah. Expect to see probably some down the road.

Bernard Vaughan Gazzicchi: Great. And just as a follow-up, just to clarify, on the $1.2 billion buyback authorization, was it contemplated the potential capital relief from Basel III in that? Or is that still just additive? Just kind of curious on that 1.

Ivan Seda: No. No. It. That would be additive. Like Clint indicated earlier, unlike what we talked about 12 months ago almost to the day, this 1 does not have a time bound nature to it. So we do have flexibility to look beyond you know, a 1 year marker with what our board has authorized regarding that. And. But, no, we are not counting on Basel III regulatory capital relief to be able to fully leverage that program. But, again, it will take longer than the 1 year marker that we executed this latest authorization under.

Bernard Vaughan Gazzicchi: Great. Thanks for taking my questions.

Operator: Thank you. Our next question comes from the line of Matthew Clark with Piper Sandler.

Matthew Clark: Hey. Good afternoon, guys. Wanted to hone in on that securities yield up nicely this quarter. I know last quarter, rate. Rates up. You got tagged with, you know, creating less of the discount. But just wanted to answer the question that I am sure I am going to get as to, you know, why that was not a headwind this quarter with rates up.

Ivan Seda: Thanks, Matthew. I will take that 1. So, yeah, I think you. You have got the backstory right, and you. You will recall that last quarter, I noted as part of our discussion around the investment portfolio, itself that while we had some temporary headwinds with regard to the accounting yield, I expressed confidence that over a long period of time, we would continue to see the bond portfolio yield increase, which is essentially what we are seeing we continue to have the dynamic of you know, purchases and front book acquisitions in the bond portfolio coming in at significantly better yields and rates than the back book as that kind of matures off. Or amortizes away.

And we have got something like 250 to 350 million per quarter of activity occurring. So that. So you think about kind of modeling us out over a longer period of time, and or if you look kind of on a year on year basis, you will continue to see that fixed asset repricing story continue. More specifically to your question, last quarter, what we saw was a decline in the discount accretion associated with rising interest rates essentially translating into slower prepayment speeds. And directionally, I think that makes sense. But what I would, I guess, the nuance that I would introduce to the conversation there is that for those underlying assets, predominantly mortgage backed securities and commercial, mortgages.

Rates and prepayment speeds are not linear. And as we dig deeper into the modeling, there is there is typically an s curve that goes into it. And so unlike last quarter, we did not see a meaningful headwind to discount accretion. Via CPR speeds in Q3. So rates moved up, but prepayment speeds had essentially already reset or adjusted to very low levels last quarter in response to the initial rate increase in the marketplace. And so with, you know, refinance activity already minimal, this quarter's additional rate movement did not really translate significantly into CPR speeds. Overall, our discount accretion on the securities portfolio in Q3 was not all that materially different than it was in Q2. I.

E, very low, but it is still significantly below what we recognized in Q1. We were in a lower rate environment. And so if you were to kinda balance out 2 factors, last quarter, the factor of discount accretion recognition reduction was greater than the you know, the core back-book repricing factor. And it was the inverse this quarter, right, that we kind of took our lumps and sustained at a lower level on discount accretion recognition in Q3. And then really the core thesis being kind of that back book repricing kinda carrying the day from a securities yield perspective. Probably more than you asked for, Matthew, but you did ask.

So I figured I would I would get into the details there a bit.

Matthew Clark: that is great. Great color. Thank you. And then just on earning assets, levels and loan balances, net loans down less than last quarter. Think the expectation is flat to down until maybe mid next year on loans. But just help us think through net loan balances. I would assume they are still, you know, maybe down a little bit, but in overall earning asset levels over the next, few quarters?

Ivan Seda: Yeah. I think you have you have got it right. I think for the next quarter, 2 quarters, probably 3 quarters, you can continue to expect to see more of the same from us in terms of you know, core focus on driving relationship based lending, You know, the variable there that probably is the most you know, the transactional portfolio has been fairly consistent, and we have. We keep a very close eye on that. I look at it almost daily in terms of the trends that we see within that portfolio. 1 factor that you know, could play out in Q4 and into Q1 is a slight reduction in CPR speeds in that book.

As, you know, rates have reset to a higher for longer environment. But it is been pretty consistent in order to plan around that transactional portfolio at roughly a $250 million per quarter. The CRE marketplace, as Tore described it earlier, is dynamic. And we have each and every time aired on you know, maintaining our discipline both regarding structure and price as Tory talked about. And we think that is serving us very well as we continue to kinda work through this in a disciplined manner and optimize our portfolio. I think you know, flat to slightly down over the course of Q4 and into Q1 would be a fair expectation there.

Torran Nixon: And then maybe I will just ask Tory if there is anything else that he would he would speak to in terms of what we are seeing in the marketplace. No. Other. I would. You know, activity wise, you know, pipeline, the things that I am seeing in the. On the courses side of the house is pretty confident that our CNI growth can know, remain in this low to mid single digit level kind of consistent what we have done the last 3 quarters. Obviously, barring any, you know, big macroeconomic, you know, headwind. But lots of lots of good activity. Lots of good stuff going on in the various parts of the franchise.

So Phil relatively optimistic to kinda continue what we have been doing.

Matthew Clark: Great. Thank you.

Operator: Thank you. Thank you. Please stand by for our next question. Our next question comes from the line of David Ciavarini with Jeff. Your line is open.

David Chiaverini: Hi, thanks for taking the questions. I wanted to ask about deposit costs. Guys mentioned about down 1 basis point. Can you talk about deposit beta assumption and the outlook from here on deposit costs?

Ivan Seda: Yeah. Great question. You will note, I think, in our materials that we now have kind of. The yo is gonna keep bouncing around here. So we showed an up upped run-in the beta there. Then a down run. We have been pretty consistent, and I have guided to a 50% beta on a through the cycle basis. And when I think of that beta, I tend to view it my personal bias is to view beta over the course of months and quarters, not days and weeks because some of these things take time to fully settle in.

What we saw in the marketplace is in Q2 really, the market started to react in what we have seen from competitive pricing perspective. We did adjust some of our pricing around you know, our money market and CD rates over the course of summer. But we have maintained discipline on the. As rates have increased. So, yeah, I would say kind of 50% beta is a fair assumption going forward.

Christopher Merrywell: Thinking about Q4 and beyond. I will turn it over to Christopher. Yeah. David, what I would add to what Ivan laid out there is that you know, he previously in this call stated that fourth quarter rates could projected to potentially rise. You know, we always look at it from the standpoint of whether rates go up or they go down. We are gonna we are gonna perform better than the peers. And I think we have been able to show that through this latest cycle that we are we are able to hold costs low through our relationship strategy and disciplined approach between higher priced CDs and things of that nature. Nature.

But, you know, the goal is to outperform what the market is. What Ivan puts out there is a good is a good proxy for it. But we battle it each and every day. We talk about deals each and every day, and you know, it just all adds up. So it. it is just part of our discipline.

David Chiaverini: that is helpful. And then on the noninterest bearing deposit mix, holding in nicely at 33%. How do the pipelines look on that side? Is the ability to hold this steady kinda in the cards given. Or I should say despite the backdrop of higher rates?

Torran Nixon: Yeah. This is Tory. I would answer that pretty briefly and say, yes. The goal in the assumption is to continue to maintain that mix. It. it is a result of core operating accounts, new businesses brought into the company, you know, managing and working through all the things we have been talking about, full relationship banking is just gonna come with non interest bearing demand. Deposits, and that is the emphasis and focus.

Christopher Merrywell: Yeah. In the in the current rate environment, that is a pretty steady. We have seen it be steady. that is kind of the mix that the customers are. How they are choosing to keep their money between operating accounts and money market accounts or whatever it may be. Know, it would take a pretty significant rate decrease before people start looking at it and going, there is no reason to move it into a money market. So I think that. that is the goal, and I think we are seeing that just over and over with especially, with new customers as well. 1 thing that we do. I will just add 1 thing real quick is relation.

This relationship profitability model that we that we leverage in the company of how we price loans, how we price deposits, is dependent on all the various pieces that we earn from the customer. So some of that is just good old fashioned, you know, blocking and tackling and telling, you know, customers, hey. This what you need to have with us so that we can maintain this level of pricing so that we can all continue to win and be profitable.

David Chiaverini: Good color. Thank you.

Operator: Thank you. Our next question comes from the line of Janet Lee with TD Cowen. Your line is open.

Janet Lee: Good afternoon. Afternoon.

Ivan Seda: You have you have clearly made a lot of good progress running off and repricing the transactional portfolio. Just wanna make sure that I am understanding this correctly on slide 25. The nontransactional loans, there have been flat over the past year. Is that basically due production being offset by payoffs? And then what changes that gets overall loan growth back to positive around 2027?

Janet Lee: Yeah.

Ivan Seda: The page 25 is just a quarter on quarter view, so it is not a not a full year on year. But you are right. That excluding the rundown in the transactional portfolio, it is been roughly flat over the course of the quarter. We talked about production levels. We have, I think, bounced around between it, a billion 2, a billion 3. I think we have hit a high point potentially from a production perspective on lending up to a billion 4. So we have been in that range pretty consistently. So it has not been you know, you do not see a lot of volatility in terms of the production that we produced.

We continue to, as Tory alluded to earlier, drive core commercial lending kind of in a 56%, annualized level, pretty consistently each and every quarter. It really has been that transactional you know, headwind from a growth perspective that has held our know, balance sheet level kind of in check to where it is it is been here in the last several quarters. What could change that? You know, variety of factors macroeconomically. I mentioned earlier that there is the potential that some of these transactional credits stick around for longer. Under a hire for longer scenario. That does occur. You know, we still have the benefit of repricing behavior within the portfolio.

The, you know, buckets that we laid out here on slide 25 are generally not maturity dates, but they are, when these assets come up for repricing. And so even if they stick around for a little bit longer, they become less and less of a headwind. And I think you see that in the form of this transactional portfolio kind of inching up over time in terms of the yield associated with it. Okay.

Janet Lee: It seems like it is $40.3 billion the same from a year ago slide, but maybe misunderstanding something. I can check back. You have been obviously holding the line very well on expenses, which is really impressive. But as the growth rate accelerates, in 2027 versus 2026. Should we like. Should the gross trajectory on expenses change in any meaningful way? Versus what we have seen over the past couple of years? Thank you.

Ivan Seda: Great question. Obviously, this year, we had over the course of Q4, in 2025 and then Q1 and q 2 of this year, we were operating through identification and execution on $127 million with the PPBI cost synergies. The 01/27 being our original target, we outperformed that. I think we landed at $132 or $133 in terms of total identified savings. And so that, you know, that provided a opportunity to continue to, you know, bring our expense base down from H1 to H2. I signaled that a range for Q4 that is that is pretty static to where we landed this quarter in terms of operating expenses.

Then as we think about 2027, we guide to know, something that is in the in the realm of kind of inflationary based expenses, something in the 2% type range is probably a pretty reasonable modeling assumption. Again, we are building our plan now. We will continue to invest in infrastructure and people and technology to grow the bank for years to come, but we are. We will continue to maintain our discipline and find offsets where possible.

Operator: Thank you. Please stand by for our next question. Next question comes from the line of Tahmir Baziller with UBS. Your line is open.

Tahmir Baziller: Hi. Good afternoon. In reference to slide 21, it looks like, yeah, slide 21. It looks like payoff activity slowed this quarter. Just wondering, was that also rate driven and maybe prepay slowing? Is that level sustainable? And then maybe just provide some color on that $417 million in the other column.

Ivan Seda: From a payoff perspective, you know, yes. We did start to see a little bit of reduction in prepayment speeds over the course of Q3, in particular, in August and September. As rates rose. You know, it is it is anyone's guess as to know, how that is gonna manifest in Q4, but I would suspect that prepayment behavior will slow down and you know, relative to earlier in the year in the first half. I did not quite catch the first half of the. Or the second question there that you asked.

Tahmir Baziller: It looks like in the other column, it is negative $417 million. That number is larger than it is been in recent quarters. I am just wondering what that driver was. I guess, like, that is available.

Ivan Seda: So we. Maybe we can follow-up with you on that 1.

Tahmir Baziller: Okay. Great. And then maybe, just circling back to the deposit commentary, it looks like there is a decent slug of CDs that mature here in the coming quarter. I guess, what is the intent to retain the maturities there? Then appreciate your comments about starting to some of your rates for increased competition. I am just wondering what your current CD replacement rates are.

Ivan Seda: Yep. In general, I think the movement that you have seen over the course of the last year around, term deposits, a lot of that movement was in the function of, brokered CDs. You can see in kind of our liquidity slide that is a very small piece of our funding stack at this point. So we really have kind of finalized the optimization of our broker TD portfolio. The vast majority of what remains is retail consumer CD portfolio. We are working to kind of stabilize and maintain that portfolio under its current size. I think we are seeing kind of, CD rollover rates probably north of 80% in general, Christopher. But Yes.

Which is kinda where we would like to where we would like to be there. We have adjusted some of our flagship offers really in kind of the 6- to 9-month term. Structures at this point. Although, you know, we continue to look at rate environment outlook, what is likely and then balance that out with our asset liability management position. And so we will continue to be active usually, 1 or 2 terms per quarter where we will look to you know, adjust our pricing. See if Christopher wants to add anything.

Christopher Merrywell: Yeah. What I would what I would probably add to that is, you know, we really look at those CDs on a on a daily basis of what is renewing, what is coming in. You know, obviously, we could. If we saw a need to boost the retention rate, we could change the we could change the underlying rate you know, for tomorrow. And vice versa. If we were renewing too much, we could we could take it back the other day. So it really works hand in hand with what our other balances are doing as well. We do not utilize it as a 1 off. Let's let's drive balances through higher priced CDs.

We use it as a tool amongst the whole portfolio. We are pretty comfortable with where it is at. Comfortable with where we fall into the market. And you saw early in the year where people a lot of banks went out and raised out and raised rates, and we held our down for a while and continued to monitor it. And then we would come back to where we typically fall kind of in the in the middle of the pack or so. Again, I am not sure what the competitors are gonna do, but Monday, I will know what the new offers are, and we will go from there.

Tahmir Baziller: Great. Thank you.

Operator: Thank you. Please standby for our next question. Ladies and gentlemen, just in the interest of time, our final question will come from the line of Jared Shaw with Barclays. Your line is open.

John Rowe: Hi. This is John Rowe on for Jared Shaw. Most of my questions have been asked, but just looking at the treasury management, growth that you have had this year, what is the penetration that you have of your commercial customer base using that product? And I guess, how much more runway is there to keep extending that?

Torran Nixon: This is Tory. A couple things. I am going to go on memory here a bit. Penetration rate for treasury management and commercial is roughly 58%. The growth has been from a few different things that we have incorporated. 1, and when I think of treasury management, I am also kinda adding in some of the other fee based products some of the big ones that we have mentioned earlier. We have. Jared on customer's behavior, we have a technology in the company that gets driven through Salesforce that based on customers' behavior, in their accounts, it kinda signals a kind of next-best offer. For the customer, which could be it could be commercial card.

It could be it could be international something else. And so I think that is that is feeding that to the Salesforce. And our Salesforce. And we are just getting. We are getting better and better and better at having. Of leveraging that technology having relationship reviews with customers, providing working capital assessments with customers, and just driving this opportunity that our customers need and want to more efficiently and effectively operate their business.

The last thing I would just say is over the last year, we have added some not incremental cost into the company, but we have added some really strong like, really strong treasury management salespeople in the-- when I think about where we have added bankers throughout the franchise, I think that the greatest acumen and strength in just banking prowess has been in our treasury management folks. They have really elevated the game, and they are doing some great things. So all of those things combined are, I think, allowing us to continue to focus on it and grow the business.

John Rowe: Okay. Great. that is a really good overview. that is all for me. Thanks.

Operator: Thank you. Ladies and gentlemen, at this time, I would now like to turn the call back over to Jackie for closing remarks.

Jacquelynne Bohlen: Thank you, Towanda. Thank you for joining this afternoon's call. Please contact me if you have any questions or would like to schedule a follow-up discussion with members of management. Have a good rest of the day.

Operator: That concludes today's call. Thank you for your participation. You may now disconnect.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.